Democratic governments tend to accumulate excessive debt. This column proposes a new rule – the ‘Catenarian Fiscal Discipline’ – which allows a fiscally disciplined incumbent to limit the debt-making of the next officeholder. This way, fiscal discipline today can lead to fiscal discipline in the future. Such a rule would require that we broaden our notion of representative democracy by recognising the fact that a current government already has various implicit ways of limiting what its elected successors can do.
Hans Gersbach, 04 January 2014
Guillermo Calvo, 31 August 2009
This column introduces "triple time-inconsistent" episodes. First, a public institution is expected to cave in and offer a bailout to prevent a crisis. Then, in an attempt to regain credibility, it pulls back. Finally, it resumes bailing out the survivors of the wreckage caused by the policy surprise. This column characterises the 1998 Russian crisis and the current crisis as triple time-inconsistency episodes and says that a financial crisis may simply be a bad time to try to build credibility.